Presentation by Dr. DeLisle Worrell to the Peterson Institute on Macroeconomic Options for Small Very Open Economies

Created 22 Apr, 2014
Categories Speech
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Small very open economies are different from large economies, in that they face a foreign exchange constraint that cannot be alleviated by depreciation of the real exchange rate or by other policies. This constraint affects monetary, fiscal, and exchange rate policy; fiscal sustainability and debt management; and patterns of economic growth. With respect to monetary/fiscal/exchange rate policy, the most accessible framework for such economies is an exchange rate anchor, where the foreign currency market is balanced by managing aggregate demand, using fiscal policy. With respect to debt, the most sensitive indicators of fiscal sustainability are the ratio of external debt service to foreign earnings, and the rollover risk on foreign currency loans. With respect to growth, expansion in the small open economy is sustainable only if led by the sectors that earn or save foreign exchange. Dr. Worrell elaborated on these concepts.

Gov's address to Peterson Institute


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